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WHICH CREDIT CARDS HAVE THE BEST REPAYMENT TERMS?

September 5, 2017

Now of course there is an element of sarcasm to the question and we will exam that in the blog. Nonetheless, it is a very serious question that deserves contemplation.

We recently met with two very separate retirees – in two very seperate communities – each well past retirement age and neither will be able to return to work or has the capacity to improve their income situation.

First we met an 82 year individual who lives on a fixed income, CPP and OAS, totaling about $1,510 per month.  This individual accumulated significant during a hard working life and was just starting to pay it down prior to retirement, unfortunately ill-health often accompanies advancing years forcing an earlier than anticipated end to a long career of self-employment.

The subsequent reduction in income (to pensions) made it impossible to maintain regular payments.  However, not wishing to abandon personal responsibilities the decision was made to sell the family home, which had been mortgage free.  The money was invested at the bank to accumulate interest and to be used to pay down the debt.

Unfortunately with only a grade eight education our industrious, hard-working, well intention senior citizen lacked the sophistication to predict the impact of compounding interest – a concept only too well known to lenders.  The debts came down slower that the funds could hold.  So 18 years later our retiree is experiencing stress filled sleepless nights as one credit card must be used to pay another in order to be able to afford groceries.  The adult children and grandchildren all know that money is tight, but none of them know the true gravity of the situation.

Our 82 year old owes almost $41,000 on a MBNA card.  When the fine print is read on the statement it is understood that it will take 40 years to repay if only minimum monthly payments of $824 are made.  However, if monthly payments of $1,457 were to be made the total balance could be paid off in a mere three years – by age 85 – but remember the pensioner only has a government pension that nets $1,510 per month.

By contrast we met with a 70 year old with a CIBC credit card balance of about $28,000 – oh that’s on each of two cards so the total CIBC credit card debt is about $56,000.  This retiree has a higher level of education and an equally strong work ethic and sense of responsibility.  The cards were originally obtained to help cover medical costs and unexpected expenses.  However, as time progressed the balances became more and more difficult to pay down.

Eventually, our enterprising senior decided to follow other residents from the geared to income seniors building and jumped on the “free shuttle bus” to the Casino in the hopes of winning enough money to pay off the balances.  No one ever talked about their losses only the winnings.  Spurred on by hope, cash advances soon flowed from the conveniently placed ATMs at the Casino but the big wins never happened.

This senior came to us looking for a solution, feeling like a criminal, no longer gambling, using one card to pay for another, feeling ashamed of getting caught up in the whole credit card system.  We looked at the CIBC statements – on one of the statements was the indication that with minimum monthly payments of $421 (that is for one card only) it will take 138 and two months to pay off.   This Canadian pensioner nets $1,392 per month from government pensions.

So now we have shared the war stories – altered only enough to hide the identities of the seniors – which credit card has the best repayment terms?  Yes, that was the sarcasm – in neither case will the pensioner live long enough to earn enough money to repay their debts.  Presumably the lenders are hoping that amongst the bones of their respective estate may be an insurance policy or two that will be divisible amongst the creditors.  In the alternative they never cared if they were ever repaid a long as they could add the receivable to the company balance sheet enhancing their asset position.

The MBNA terms of repayment while also quite ridiculous at least offered a three year exit strategy, albeit totally unrealistic.  If you can’t pay off the full balance of your credit within one month of incurring the charges you need to throw it away and stop using credit.  Be responsible for your own financial situation don’t fall for the credit trap.  Get out of debt while you are still young enough to save for retirement.